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Tuesday, August 08, 2017 10:22:22 AM
It is good to have A/R high cause that means sales are high BUT A/R should then lower as invoices get paid. As revenue goes up their A/R will go up but you want to see some in cash and not all in A/R cause that means they are not getting paid timely or even at all.
Big thing is we don't know their terms. Net 60 days on May shipments means it doesn't have to be paid till July which then goes to Q3 so A/R will be higher in Q2. In Q3 you expect all that A/R to show as paid and move to cash since it was due in July. Q3 should have lower A/R unless they have more sales (which we know they will). In that case the number will keep going up and up. But you want to compare the quarters and make sure what A/R went up by falls within the terms and not just a carry over of bad debt.
It becomes a cycle. Each quarterly report feeds off the next. You would have to see if revenue also went up to justify a higher A/R number in a future quarter or if it is just higher cause a lot of invoices owed are still outstanding.
To play devil's advocate all these sales are fine and dandy but without being paid by their distributors timely it can still be a problem. Hopefully terms are being adhered to.
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